Australia economy speeds to three percent

03 Mar, 2016

Australia's economy outpaced all forecasts to grow at the fastest pace in almost two years last quarter, a hopeful sign the worst of the global commodity rout may be over for the resource-rich nation. Wednesday's upbeat report sent the local dollar leaping half a US cent as investors reined back expectations of further cuts in interest rates, while providing a political boost to the coalition government of Malcolm Turnbull.
Turnbull faces a national election later this year and an improving economic background could argue for him to go a few months early, perhaps in July.
Gross domestic product (GDP) grew 0.6 percent in the fourth quarter, from the previous quarter when it rose an upwardly revised 1.1 percent.
That propelled growth for the year to 3 percent, well above the 2.5 percent that had been expected by both analysts and the Reserve Bank of Australia (RBA).
"Given Australia is going through the biggest mining pullback in our lifetimes, this is a pretty good outcome," said David de Garis, a senior economist at National Australia Bank.
"Our baseline is that the RBA is done cutting rates, and these numbers only support that view."
The central bank has held rates steady since May last year and just this week skipped a chance to ease, saying it saw "reasonable prospects" for growth.
Investors are still wagering it will have to ease eventually given the headwinds facing the global economy, but likely not as quickly. Interbank futures now imply a 45 percent chance of a cut by May, compared to 60 percent before the data.
The RBA would prefer that any further stimulus come through a lower Australian dollar, but is being thwarted by the drastic easing of central banks elsewhere.
The Bank of Japan only recently joined the club of negative interest rates and the European Central Bank is widely expected to cut further below zero next week.
The slowdown in China also remains a major uncertainty since the Asian giant takes almost a third of Australia's exports.

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